Climate Change and Carbon Tax Expectations

Michael Hoel

Memo 04/2010

Last ned memo

If investors fear that future carbon taxes will be lower than currently announced by policy makers, long-run investments in greenhouse gas mitigation may be smaller than desirable. On the other hand, owners of a non-renewable carbon resource that underestimate future carbon taxes will postpone extraction compared with what they would have chosen had the policymakers been able to commit to the optimal tax path. If extraction costs rise rapidly as accumulated extraction rises, near-term emissions increase as a consequence of a downward bias in the expected future carbon taxes. Whether investments in greenhouse gas mitigation go up or down due to the expectation error depends on the time pro…le of the returns to the investment.

Published June 20, 2014 1:22 PM - Last modified Jan. 24, 2019 11:43 AM